M/s Gorsi Construction Private Limited v. The Union of India & Ors.

These two petitions are being disposed of by a common judgement since similar questions of fact and law are involved in these cases.

Briefly stated the facts of the case are that the Border Roads Organisation is entrusted with the task of construction and maintenance of roads in the border areas of the country. The Border Roads Organisation in turn has different divisions in different parts of the country, such as, project Deepak, project Himank, etc. These projects look after the work of construction and maintenance of border roads in their respective divisions. In the present case, we are concerned with the project Deepak in so far it is concerned with the construction and maintenance of the Manali-Leh road upto Sarchu within the State of Himachal Pradesh.

The petitioner and the private respondents are all business entities engaged in the work of construction of roads. The grievance of the petitioner is that the Chief Engineer and subordinate officers of project Deepak have not followed the guidelines issued by the Ministry of Road Transport and Highways while laying down the qualifications for contractors. In the alternative, it has been submitted that the guidelines laid down by the Director General Border Roads Organisation have not been followed by the respective divisions and all divisions are laying their own criteria which is not consistent with the guidelines issued by the Boarder Roads Organisation or the CVC. 3

The stand of the Chief Engineer, Project Deepak, is that these roads are highly sensitive roads meant for defence purposes and the idea is to get the best organisation to construct the roads. It is submitted that the guidelines of the Ministry of Road Transport and Highways (MORTH) are only applicable to projects financed by it. As far as the instructions given by the Boarder Roads Organisation are concerned the stand is that these could not be followed in letter and spirit. It has also been contended that it falls within the scope of the projects to award a contract or not and the eligibility criteria can be changed by the organization awarding the contract. According to the respondents they are following the guidelines of the Central Vigilance Commission (CVC):-

In CWP No. 1158 of 2010, we are concerned with tender No. CE(P)DPK/26/2009-2010 relating to k.m 0 to k.m 7.00 of the Manali - Sarchu road. The total value of the tender as per the department is about 8.48 crores. The petitioner obtained copy of the tender and went through the tender conditions contained in tender document Annexure P-3. The project Deepak authorities had laid down a pre qualification test known as initial filter test and scoring on specified criteria. In the initial filter test four criteria were laid down. We are only concerned with criteria No.2. In the present case, the criteria laid down was that the applicant during the last three years starting from 1st April,2009 and ending on 28th February, 2010 should have executed three similar works costing not less than Rs.470 lakhs each or two similar works costing not less than Rs.600 lakhs 4 each or one similar works costing not less than Rs.720 lakhs. The grievance of the petitioner is that this initial filter test is not in accordance with the guidelines laid down by the (MORTH) and this high filter test has been laid only with a view to eliminate new entrants and to continue the monopoly of the old

firms. Shri J.S.Bhogal, learned senior counsel for the petitioner, has drawn my attention to the guidelines laid down by the (MORTH). Relevant portion of which reads as follows:- (cid:147)2.6.3 General Experience The applicant shall meet the following minimum criteria: (a) Average annual turnover (defined as billing for works in progress and completed in all classes of civil engineering construction works only) over the last five years of 40 percent of the value of contract/contracts applied for. (b) Experience in successfully completing or substantially completing at least one contract of highway (road and/or bridge works)/airport runway of at least 40 percent of the value of proposed contract within the last five years. (cid:148)

Shri Bhogal, learned senior counsel, submits that as per the (MORTH) guidelines the average annual turnover over the last five years should be of the 40% of the value of the contract and the tenderers should have successfully and substantially completed (which means 90% or more) 40% of the value of the proposed contract. In the present case, the conditions laid down are much more stringent. If an applicant relies upon one contract, he should have done work of 85% value and if the person relies upon more than two contracts then the value of the work should be more than 100%. 5

In the alternative, Shri Bhogal, learned senior counsel, submits that if it is presumed that these guidelines of the (MORTH) are not applicable then the guidelines of the Boarder Roads Organisation should be followed. The Director General of the Boarder Roads on 6th August, 2009 issued a letter to the Chief Engineers of all the projects working under it. The relevant portion of this letter reads as follows:- 25686914 (cid:147)Tele Emailbro-e8 @ hub.nic.in Dte General Border Roads http://www.bro.nic.in http://www.gref.nic.in Seema Sadak Bhawan Ring Road, Delhi Cantt. New Delhi (cid:150) 110010. Registered AD 24228/DGBR/P/Gen/3109 06 August, 2009 Headquarters Chief Engineer Project Deepak C/o 56/99 APO (All Projects) Pre-qualification criteria

1. It has been observed by this HQ that different CE(cid:146)s are keeping different pre-qualification criteria for selection of tenders. Certain CE(cid:146)s are specifying that tenders should have experience of doing work in their locality/hilly terrain. It restricts entry of outside contractors in participation of tendering though they are enlisted in eligible class and category of works and are also having experience of doing similar works in other location/plain areas.

2. With the aim to keep uniform pre-qualiication criteria and also to encourage more and more eligible contractors for execution of works, the pre qualification criteria has been rationalized and shall be fixed as given in succeeding paragraphs. xxxx(cid:133) (cid:133)(cid:133).. xxxxxxxx(cid:133)(cid:133)(cid:133). Xxxxxxx(cid:133)(cid:133)(cid:133). xxxx(cid:133) (cid:133)(cid:133).. xxxxxxxx(cid:133)(cid:133)(cid:133). Xxxxxxx(cid:133)(cid:133)(cid:133). 6 Sr Eligibility Criteria

1. Past Experience of completed works Documents required to be submitted. Firm should have completed satisfactorily following works (irrespective of location) in last seven years with any Govt./Govt. undertaking: of works 1. List completed last 7 years and list of present works in progress. Three works costing not less than 30% of estimated cost of work. Or. Two works costing not less than 40% of estimated cost of work. Or. One work costing not less than 50% of estimated cost of work. Note:- At least one work not less than 30% of the estimated cost of works should be pertaining to similar type of work.

2. Performance certificates issued by the authority( competent not below the rank of Executive Engineer) of requisite value of works eligibility criteria. (cid:148)

A perusal of the relevant portion of the letter clearly shows that the Director General Boarder Roads was aware of the fact that there was no consistent policy of fixing pre qualification criteria. The Director General had also found that new contractors were not being permitted to participate by laying down such criteria. Therefore, fresh guidelines were issued and as per the guidelines with which we are concerned the contractor had to show that he had undertaken three works costing not less than 30% in the last seven years or two works of not less than 40% value of the estimated cost of work or one work costing not less than 50% of the estimated cost of work subject to the condition that at least one work of not less than 30% of the estimated cost of works should be pertaining to similar type of work. If these guidelines were followed then the petitioner would have passed the initial filter test. The petitioner filed the writ petition before the tenders were opened 7 but no stay was granted in favour of the petitioner though it was ordered that processing of the tenders shall be subject to the result of the writ petition. Tenders of the petitioner have been rejected on the ground that he did not give the complete list of works. I have been informed at the bar that more than 50% of this work stands completed. Therefore, effectively no relief can be granted to the petitioner as far as this petition is concerned but the matter requires to be considered.

In CWP No.1698 of 2010 the petitioner on similar grounds challenged the filter test and criteria laid down by the Border Roads Organisation in respect of other tenders. The stand of the respondents is that these tenders relate to sensitive roads involving the defence of the country. According to the respondents, the guidelines issued by the (MORTH) are not applicable to it except for works sanctioned and funded by the (MORTH). Admittedly, the present work was funded through the Ministry of Defence and not through the (MORTH). As far as the rationality of the guidelines is concerned, the stand of the Chief Engineer is that pre filter conditions were fixed so that only financially sound and experienced contractors could submit the bid.

As far as the guidelines of (MORTH) are concerned in my view they would not apply to roads which are not funded or sanctioned by the (MORTH). The head note of the guidelines reads as follows:- (cid:147)Guidelines regarding procedure to be adopted for invitation of tenders and qualification of Contractors for execution of Road and Bride works on National 8 Highways Centrally Finance Schemes- Modifications in the procedure. (cid:148) It is clear that these guidelines though sent to the Director General of Boarder Roads but would apply only to those roads which are funded by Centrally Financed Schemes.

Assuming these guidelines are not applicable then the guidelines issued by the Boarder Roads Organisation must be held to be applicable. These guidelines were issued on 6th August, 2009 and should be followed by all projects falling under the jurisdiction of the Boarder Roads Organisation and project Deepak authorities cannot be heard to urge that till 2010 there were no guidelines. The guidelines of August, 2009 have to be followed in letter and spirit.

Shri Sandeep Sharma, learned Assistant Solicitor General of India urges that since the guidelines issued by the Boarder Roads Organisation could not be made applicable the project Deepak authorities had sent its comments to the Boarder Road Organisation on 4h September, 2009, thereafter on 26th March, 2010 the Director General Boarder Roads Organisation again referred to the CVC guidelines. The advice of the CVC is as follows:- (cid:147)5. The following points must be kept in view while fixing the eligibility criteria:- A) For Civil/Electrical Works i) Average Annual financial turnover during the last three years, ending 31st March of the previous financial year should be at least 30% of the estimated cost. ii) Experience of having successfully completed similar works during last 7 years ending last day of month 9 previous to the one in which applications are invited should be either of the follows:- a) Three similar completed works costing not less than the amount equal to 40% of the estimated cost. Or. b) Two similar completed works costing not less than the amount equal to 50% of the estimated cost. Or. c) One similar completed work costing not less than the amount equal to 80%of the estimated cost. iii) Definition of (cid:147)similar work(cid:148) should be clearly defined. In addition to above, the criteria regarding satisfactory performance of works, personnel, establishment, plant, equipment, etc. may be incorporated according to the requirement of the project. (cid:148)

According to the Chief Engineer, Deepak Project, they have followed these guidelines. At the outset, it may be stated that the CVC guidelines relied upon are only illustrative and would not overrule the specific guidelines issued by the Boarder Roads Organisation. When there were specific guidelines dated 6th August, 2009 in this regard mere reference to the CVC guidelines dated 26th March, 2010 would not mean that the criteria laid down by the CVC had to be followed.

There is inherent fallacy in the argument of the respondents. In tender No. CE(P)DPK/26/2009-2010 the value of the contract was about 8.48 crores and the initial filter test as already mentioned above provides that experience in three similar works should be of those costing not less than Rs.4.70 crores or two similar works each costing not less than Rs.6.00 crores or one similar work costing not less than Rs.7.20 crores. It would be pertinent to mention that from the material on 10 record it is apparent that the project Deepak authorities were not following any uniform policy. Even if the CVC guidelines are taken into consideration according to these guidelines a contractor could have either done three works costing not less than 40% of the estimated costs of the contract or two works of not less than 50% of the estimated costs or one work of not less than 80% of the value of the contract. The project authorities did not consider the first two options and have arbitrarily taken into consideration single individual contract only. This is not in consonance with the CVC guidelines.

Tender No. DPK-06 of 2009-10 relates to Manali (cid:150) Sarchu Road from 114 k.m to 121 K.m. The value of this work as per NIT was of Rs.5.74 crores. The petitioner was found eligible for this work and awarded the same at the cost of Rs.4.056 crores. The explanation given by the Border Roads Organisation is that benefit of doubt with regard to permit for running stone crusher was given to the petitioner.

Tender No.DPK-10 of 2009-10 was of the value of 4.08 crores as per NIT. The filter for this tender for working experience laid down by the project Deepak authorities was that only individual works of the value of more than Rs.2.25 Crores would be considered.

Tender No. DPK-11 of 2009-10 was of the value of Rs.3.72 crores and for this work also only individual works of Rs.2.25 crores were considered. Tender No.12 was of the value of Rs.5.22 crores and in this also the same conditions were laid down. 11

Tender No.16 was of Rs.76 lakhs but as per the tender condition only individual works of more than Rs.1.5 crores both in the high altitude areas and hilly areas are to be taken into consideration. Last tender is tender No.DPK-25 of 2009-10 of the value of Rs.2.79 crores. In this tender only individual works of the value of Rs.1.25 crores were taken into consideration for the initial filter test.

The petitioner who has been found suitable to carry out the construction work of the value of 5.74 crores has been eliminated by applying unrealistic conditions for projects of much lower value of Rs.4.08 crores, 3.72 crores, 5.22 crores,

0.76 crores and Rs.2.79 crores. This clearly shows the irrationality of the system being followed by the respondents.

I have not taken into consideration the work which was subject matter of CWP No.1158 of 2010 but the tenders which were subject matter of CWP No.1698 of 2010 and have been awarded to the private respondents and have been actually awarded were of the value of Rs.4.08 crores, 3.72 crores, 5.22 crores, 0.76 crores and 2.79 crores respectively. These works have been awarded for a sum of Rs. 393.12 lakhs, 356.89 lakhs,

657.47 lakhs, 78.1 lakhs and 288.45 lakhs, respectively. Thus, the total value of the works awarded is Rs.17.7403 crores. The bids of the petitioner were returned unopened by the department. The petitioner had attached these unopened bids with the writ petitions and these have been opened in Court and it has been found that M/s Gorsi Construction Pvt. Ltd. had submitted a tender of the value of Rs.2.29548 crores in respect 12 of tender No.10 against the value of Rs.4.08 crores and awarded tender at Rs.3.9312 crores. Therefore, the loss to the Boarder Roads Organisation in this tender alone is of Rs.1.6357 crores. In respect of tender No.11 the value of which was 3.72 crores and was awarded to the private contractor for Rs.3.5689 crores. The bid of the petitioner was of Rs.3.2048 crores. Therefore, there is loss of Rs.0.3641 crores to the Boarder Roads Organisation. Value of tender No.12 was of Rs.5.22 crores and has been awarded for a sum of Rs.6.5747 crores to M/s Vinita Entrepreneurs. The bid of the petitioner was for a sum of Rs.6.2411 crores and the loss caused to the Border Roads Organisation is of Rs.0.3336 crores. Value of tender No.16 as per NIT was of Rs.0.76 crores. It was awarded for Rs.0.781 crores. The bid of the petitioner was for Rs.0.584 crores. Therefore, the loss caused is of Rs.0.197 crores. Tender No.25 was of the value of Rs.2.79 crores and was awarded for a sum of Rs.2.8845 crores. The bid of the petitioner was for a sum of Rs.2.6227 crores and the loss caused to the Border Roads Organisation is to the extent of Rs.0.2618 crores.

The petitioner was the lowest bidder in all the five contracts which were finally awarded and in case he had not been filtered out at the initial stage the Border Roads Organisation would have saved a sum of Rs.2.7922 crores. The five contracts which have not been awarded to the petitioner have been awarded for a total sum of Rs.17.7403 crores and the loss caused is of Rs.2.7922 crores. Therefore, the loss caused is almost 16%. How much more road could have been 13 constructed by utilizing this amount? By fixing arbitrary criteria heavy loss has been caused to the public exchequer.

This Court is not oblivious to the fact that these are projects of national importance and therefore, the Court is not commenting on the very high weight age given to the work done in high altitude areas but by raising the artificial barrier of individual project to such a high value, effectively the project Deepak authorities have ensured that only those contractors who had been working earlier with them are eligible and new entrants cannot even be considered. The filter test has been designed in such a fashion that it would be virtually impossible for a new entrant to enter the field. This is a modern age where globalization and liberalization is taking place but the mind set of the authorities of the Deepak project appears to be of the mediaeval times. No doubt, people who have experience of working in high altitude areas should have been given extra weight age but the parameters could not have been made so stringent as to virtually avoid any new entrants in the field.

The contracts in question relate to stacking of material and tarring of roads. No doubt, this work was to be done in high altitude areas but no rocket science is involved and the only requirement is to have competent contractors having requisite experience, manpower and machinery. The bogey being raised by the project Deepak authority is that the work relates to defence and therefore greater leeway should be given to the project authorities. The bogey of defence contracts cannot be raised day in and day out and this Court is not 14 unaware of the fact that serious charges are being levelled in respect of contracts relating to defence. When public funds are involved there should be transparency in the contracts. It has also been brought to the notice of the Court that such stringent conditions are not being laid down by other projects of the Border Roads Organisation, such as, Uttranchal, north-east and the Leh-Srinagar road.

The stand of the respondents is that this work was given to the old contractors because they had experience and the work was given to the experienced contractors to ensure that the work is done within the stipulated time. This is not borne out from the record produced before me which shows that in respect of some of the contracts no work whatsoever was done in the year 2009-10. A list of monthly progress has been filed before me which shows that the work awarded to the petitioner has been completed to the extent of 42.77%. However, in respect of work awarded to M/s Vinita Entrepreneurs of contract No.12 for Rs.6.5747 crores, 0% progress was done i.e. no work was done in the year 2010. Similarly, in respect of Darcha- Shinkula road awarded to M/s Om Prakash for a sum of Rs.3.5698 crores no work was done in the last year. These are just examples to show the stand of the respondents that they were trying to get the best contractors on the face of it does not appear to be correct.

This Court is not unaware of the limitation with regard to the scope of judicial review. The Apex Court in Ramana Dayaram Shetty vs. International Airport Authority of India 15 and others, (1979) 3 SCC 489, was dealing with a matter where the authority had relaxed a tender condition to award a contract in favour of a tenderer who did not fulfil and possess the requisite qualifications in terms of the tender. The Court held as follows:- (cid:147)10(cid:133)(cid:133)(cid:133)(cid:133)(cid:133) It is a well settled rule of administrative law that an executive authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them. This rule was enunciated by Mr. Justice Frankfurter in Veteralli v. Saton, 359 US 535 Law Ed.(Second Series) 1012. xxx. xxx. Xxx. It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess arbitrary power over the interest of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it makes no difference whether the exercise of the power involves affectation of some right or denial of some privilege. (cid:148)

In Harminder Singh Arora vs. Union of India and others, (1986) 3 SCC 247, the Apex Court held that once the Government decides to award a contract on the basis of the bid it must abide by the terms thereof. It must abide by the conditions laid down in the tender document and cannot arbitrarily and capriciously reject or accept a bid.

In W.B.State Electricity Board vs. Patel Engineering Co. Ltd. and others, (2001) 2 SCC 451, the tender conditions provided that the price quoted in the bid was unalterable and could not be changed. The tendering authority held that there was some mistake made by the bidder and permitted the bidder to revise the price mentioned in the bid on the ground that 16 there had been a mistake in calculation. The Apex Court held that the tendering authority could not have permitted any party to change the bid in terms of the conditions stipulated in the bid documents itself and held as follows:- (cid:147)24. The controversy in this case has arisen at the threshold. It cannot be disputed that this is an international competitive bidding which postulates keen competition and high efficiency. The bidders have or should have assistance of technical experts. The degree of care required in such a bidding is greater than in ordinary local bids for small works.

The Apex Court in Tata Cellular vs. Union of India, (1994) 6 SCC 651 succinctly laid down the parameters of judicial review in respect of contractual matters and held as follows:- (cid:147)94. The principles deducible from are above are:- 17

1. The modern trend points to judicial restraint in administrative action.

2. The Court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

3. The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.

4. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

5. The Government must have freedom of contract. In other words a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.

6. Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. Based on these principles we will examine the facts of this case since they commend to us as the correct principles. (cid:148)

In Raunaq International Ltd. vs. I.V.R. Construction Ltd. and others, (1999) 1 SCC 492, the Apex Court was dealing with a public interest litigation. It approved the observations made in Tata Cellular(cid:146)s case (supra) and laid down the principle that normally stay orders should not be granted in respect of public projects. It also held that the tender conditions could be relaxed in the given circumstances.

In G.J.Fernandez vs. State of Karnataka and others, (1990) 2 SCC 488, the Apex Court held that if the tender 18 conditions are interpreted consistently by the State in a particular manner acting bonafide, the Court should not interfere and substitute an interpretation which it considers to be correct. It was held that it is for the State to decide what is the true interpretation of the tender documents.

The Apex Court in Monarch Infrastructure Pvt. Ltd. vs. Commissioner, Ulhasnagar Municipal Corporation and others, (2000) 5 SCC 287 summed up the legal principles relating to judicial review of administrative decisions in contractual matters in the following terms:- (cid:147)10. xxx. xxx. Xxx. (i) The Government is free to enter into any contract with citizens but the Court may interfere where it acts arbitrarily or contrary to public interest. (ii) The Government cannot arbitrarily choose any person it likes for entering into such a relationship or to discriminate between persons similarly situate. (iii) It is open to the Government to reject even the highest bid at a tender where such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid and good reasons. (cid:148)

In Laxmi Sales Corporation vs. Bolangir Trading Co. and others, AIR 2005 SC 1962, the Apex Court held that where the tenderer was required to produce certain documents including the profit and loss account duly certified by a Chartered Accountant to prove its turnover and financial capability, the documents were mandatorily required to be produced and this condition could not be waived by the State.

In Reliance Airport Developers (P) Ltd. vs. Airports Authority of India and others, (2006) 10 SCC 1, the Apex Court was dealing with a case relating to disinvestment and privatization of Delhi and Mumbai airports. The selection 19 process laid down certain criteria to be followed by the State. The final decision was to be taken by the Empowered Group of Ministers (EGOM). The Empowered Group of Ministers constituted various Committees considered recommendations. The Apex Court held that it was within the powers of Empowered Group of Ministers to decide what inputs it can take note of and from which sources these inputs should be obtained. Thereafter, the Court went on to hold as follows:- (cid:147)25. In the multi-tier system in the decision-making process the authority empowered to take a decision can accept the view expressed by one committee in preference to another for plausible reasons. It is not bound to accept the view of any committee. These committees, it needs no emphasis, are constituted to assist the decision-making authority in arriving at the proper decision. It is a matter of discretion of the authority to modify the norms. It is not a case of absolute discretion. (cid:148) While dealing with the scope of judicial review, the Apex Court held as follows:- (cid:147)56. One of the points that falls for determination-is the scope for judicial interference in matters of administrative decisions. Administrative action is stated to be referable to broad area of governmental activities in which the repositories of power may exercise every class of statutory function of executive, quasi- legislative and quasi-judicial nature. It is trite law that exercise of power, whether legislative or administrative, will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary (see State of U.P. v. Renusagar Power